IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT … Dalbey Injunction.pdfCase 1:11-cv-01396-CMA...

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1 The State of Colorado is separately filing a memorandum in support of Plaintiffs’ request for a preliminary injunction. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. __________________ FEDERAL TRADE COMMISSION and ) STATE OF COLORADO, ex rel. ) JOHN W. SUTHERS, ATTORNEY GENERAL, ) ) Plaintiffs, ) ) v. ) ) RUSSELL T. DALBEY; ) DEI, LLLP; ) DALBEY EDUCATION INSTITUTE, LLC; ) IPME, LLLP; ) CATHERINE L. DALBEY; and ) MARSHA KELLOGG, ) ) Defendants. ) FTC’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS’ MOTION FOR A PRELIMINARY INJUNCTION AND OTHER EQUITABLE RELIEF 1 Case 1:11-cv-01396-CMA -KLM Document 3 Filed 05/26/11 USDC Colorado Page 1 of 50

Transcript of IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT … Dalbey Injunction.pdfCase 1:11-cv-01396-CMA...

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1 The State of Colorado is separately filing a memorandum in support of Plaintiffs’request for a preliminary injunction.

IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLORADO

Civil Action No. __________________

FEDERAL TRADE COMMISSION and )STATE OF COLORADO, ex rel. )JOHN W. SUTHERS, ATTORNEY GENERAL, )

)Plaintiffs, )

)v. )

)RUSSELL T. DALBEY; )DEI, LLLP; )DALBEY EDUCATION INSTITUTE, LLC; )IPME, LLLP; )CATHERINE L. DALBEY; and )MARSHA KELLOGG, )

)Defendants. )

FTC’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OFPLAINTIFFS’ MOTION FOR A PRELIMINARY INJUNCTION

AND OTHER EQUITABLE RELIEF1

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TABLE OF CONTENTS

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A. Plaintiffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

B. Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. Defendants’ Deceptive Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. Defendants’ Deceptive Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

B. The Claims are False and Unsubstantiated . . . . . . . . . . . . . . . . . . . . 17

1. Defendants Have Failed to Substantiate Their Claims . . . . . . 17

2. The FTC’s Mail and Telephone Surveys Demonstrate

That Very Few Consumers Succeed . . . . . . . . . . . . . . . . . . . . 18

3. Defendants Use Testimonialists Whose Experiences Are

Not Typical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4. Consumer Complaints, Declarations, and Survey

Responses Further Evidence Consumers’ Lack

of Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

IV. Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

A. The FTC Act Authorizes the Court To Grant the Requested

Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

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B. The Standard for Entry of a Preliminary Injunction . . . . . . . . . . . . . 28

C. The Evidence Presented Meets the Standard for a Preliminary

Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

1. The Corporate Defendants’ Conduct Likely Violates

Section 5(a) of the FTC Act . . . . . . . . . . . . . . . . . . . . . . . . . . 30

2. Defendant Dalbey is Likely Individually Liable Under

Section 5(a) of the FTC Act . . . . . . . . . . . . . . . . . . . . . . . . . 34

3. The Equities Balance in the FTC’s Favor . . . . . . . . . . . . . . . 35

D. The Proposed Preliminary Injunction Is Tailored To Provide

Interim Relief With Respect To Defendants’ Unlawful Practices . . 36

V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

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TABLE OF AUTHORITIES

CASES

Bailey Employment Sys., Inc. v. Hahn, 545 F. Supp. 62 (D. Conn.1982), aff'd,723 F.2d 895 (2d Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

CFTC v. British Am. Commodity Options Corp., 560 F.2d 135 (2d Cir. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 36

FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29

FTC v. AmeriDebt, Inc., 373 F. Supp. 2d 558 (D. Md. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

FTC v. Amy Travel Serv., Inc., 875 F.2d 564 (7th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

FTC v. Beatrice Foods Co., 587 F.2d 1225 (D.C. Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

FTC v. Bishop, 2011 U.S. App. LEXIS 8473 (11th Cir. Apr. 25, 2011) . . . . . . . . . . . . . . . . . . . . 28

FTC v. Brown & Williamson Tobacco Corp.,778 F.2d 35 (D.C. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

FTC v. Cyberspace.com, LLC, 453 F.3d 1196 (9th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1 (1st Cir. 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

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FTC v. Evans Prods. Co., 775 F.2d 1084 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

FTC v. Febre, 1996 U.S. Dist. LEXIS 9487 (N.D. Ill. 1996),aff’d, 128 F.3d 530 (7th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502 (S.D.N.Y. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192 (10th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 30, 31, 34

FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

FTC v. H.N. Singer, Inc., 668 F.2d 1107 (9th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28

FTC v. Ivy Capital, Inc., No. 2:11-cv-00283-JCM-GWF(D. Nev. Mar. 25, 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

FTC v. Minuteman Press, 53 F. Supp. 2d 248 (E.D.N.Y. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

FTC v. Nat’l Invention Servs., Inc., 1997 U.S. Dist. LEXIS 16777(D.N.J. Aug. 12, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

FTC v. Preferred Platinum Servs. Network, LLC, No. 10-cv-538-MLC-LHG (D.N.J. Feb. 16, 2010) . . . . . . . . . . . . . . . . . . . . . . . . 29

FTC v. Publ’g Clearing House, 104 F.3d 1168 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

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FTC v. Sage Seminars, Inc., 1995 U.S. Dist. LEXIS 21043(N.D. Cal. Nov. 2, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

FTC v. Skybiz.com, Inc., 2001 U.S. Dist. LEXIS 26175 (N.D. Okla. Aug. 31, 2001), aff’d, 2003 U.S. App. LEXIS 1653 (10th Cir. 2003) . . . . . . . . . . . . . . . . 28, 29, 30

FTC v. Southwest Sunsites, Inc., 665 F.2d 711 (5th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

FTC v. Stefanchik, 2007 U.S. Dist. LIXIS 25173 (W.D. Wash. Apr. 3, 2007),aff’d, 559 F.3d 924 (9th Cir. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20

FTC v. Stefanchik, 559 F.3d 924 (9th Cir. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20

FTC v. Sterling Drug, Inc., 317 F.2d 669 (2d Cir. 1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

FTC v. Thomsen-King & Co., 109 F.2d 516 (7th Cir. 1940) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431 (11th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28

FTC v. US Sales Corp., 785 F. Supp. 737 (N.D. Ill. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

FTC v. Vega, No. H-04-1478 (S.D. Tex. Apr. 23, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

FTC v. Warner Commc’ns, Inc., 742 F.2d 1156 (9th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020 (7th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28, 31

FTC v. World Wide Factors, Ltd., 882 F.2d 344 (9th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29, 35, 36

Novartis Corp. v. FTC, 223 F.3d 783 (D.C. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Porter & Dietsch, Inc. v. FTC, 605 F.2d 294 (7th Cir. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Porter v. Warner Holding Co.328 U.S. 395 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Removatron Int’l Corp. v. FTC, 884 F.2d 1489 (1st Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

STATUTES AND RULES

15 U.S.C. §§ 41-58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

15 U.S.C. § 45(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 30

15 U.S.C. § 53(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

15 U.S.C. § 56(a)(2)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

28 U.S.C. § 1367 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

COLO. REV. STAT. § 6-1-103 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

16 C.F.R. § 255.2(b) (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32, 34

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2 Often such promissory notes are created when purchasers do not qualify for traditionalbank financing because they have poor credit, lack a sufficient down payment or a steadyincome, are self-employed, or the property does not meet the qualifications of a traditionallender. When this occurs, some property owners may agree to act like a bank and provide thefinancing for the sale. In such instances, the real estate purchaser typically provides the sellerwith a signed promissory note that sets out such terms of the loan as the identity of the parties,the loan amount, the length of time for loan repayment, the amount of the payments or a formulafor calculating those payments, the payment frequency, and the interest rate. Sometimes, seller-financed promissory notes are the vehicle by which people help their relatives acquire property.

3 Defendants sold products or services to 473,254 customers from January 2006 throughMarch 2009. See Declaration of Manoj Hastak, Ph.D. (“Hastak Dec.”), Exh. A (“HastakReport”), at 3.

4 See, e.g., Declaration of Christina Hanson (“Hanson Dec.”) ¶¶ 2, 3 & 4; Declaration ofWilliam McCullough (“McCullough Dec.”) ¶¶ 2, 3 & 4; Declaration of Michael Mendola(“Mendola Dec.”) ¶¶ 2 & 3; Declaration of Margaret Rodway (“Rodway Dec.”) ¶¶ 2, 3 & 4;Declaration of Kathi Yevtich (“Yevtich Dec.”) ¶¶ 2 & 3.

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I. INTRODUCTION

The FTC asks this Court to halt, during the pendency of this litigation, certain specified

deceptive practices of Russell T. Dalbey and his companies, DEI, LLLP; Dalbey Educational

Institute, LLC; and IPME, LLLP (“Defendants”). Defendants’ infomercials and other

advertising promise consumers that they can quickly and easily find, broker, and earn substantial

money brokering seller-financed promissory notes or cash flow notes (“promissory notes” or

“notes”). These promissory notes are privately held mortgages or notes often secured by the real

property that is the subject of the loan.2 Many of Defendants’ customers, who have numbered in

the hundreds of thousands,3 have succumbed to Defendants’ claims of quick and easy success.

In reliance on such claims, these consumers have spent hundreds or thousands of dollars on

Defendants’ products and services.4

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5 See Declaration of Bonnie McGregor (“McGregor Dec.”) ¶ 19.

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In fact, very few consumers make any money or broker any promissory notes using

Defendants’ products or services. Defendants’ gross revenues, less refunds and chargebacks,

from January 1, 2006 through September 30, 2010, exceeded $312 million.5 Defendants’ claims

are false and/ or unsubstantiated in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

II. THE PARTIES

A. Plaintiffs

Plaintiff Federal Trade Commission is an independent agency of the United States

Government created by statute. 15 U.S.C. §§ 41-58. The Commission is charged with, inter

alia, enforcing Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or

deceptive acts or practices in or affecting commerce. The FTC is authorized to initiate federal

district court proceedings by its own attorneys, to enjoin violations of the FTC Act, and to secure

such equitable relief as may be appropriate in each case, including rescission of contracts,

restitution, the refund of monies paid, and the disgorgement of ill-gotten monies. 15 U.S.C.

§§ 53(b), 56(a)(2)(A).

Plaintiff State of Colorado is authorized to enforce the Colorado Consumer Protection

Act (“CCPA”) pursuant to COLO. REV. STAT. § 6-1-103. This Court has supplemental

jurisdiction over plaintiff Colorado’s claims under 28 U.S.C. § 1367.

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6 See McGregor Dec. ¶ 6 & Exh. 2.

7 See McGregor Dec. ¶ 17.

8 See WITCFB Website, www.witcfb.com/learn more.aspx; see, e.g., Yevtich Dec. ¶ 7.

9 See McGregor Dec., ¶¶ 5 & 19 & Exh. 1.

10 See McGregor Dec., ¶¶ 7-10, 19 & Exhs. 3, 4.

11 See McGregor Dec. ¶ 4 & Exhs. 1-3.

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B. Defendants

Defendant Dalbey Education Institute, LLC (“DEI”), formerly known as America’s

Note Network, LLC, is a Colorado limited liability company.6 As of 2010, DEI owned the

Winning in the Cash Flow Business infomercial.7 DEI has advertised, marketed, offered for

sale, sold, and distributed educational products and services, including the Winning in the Cash

Flow Business program, and other programs, services, seminars and workshops.8 Defendant

DEI, LLLP is a Colorado limited liability limited partnership and the holding entity and parent

of DEI.9

Defendant IPME, LLLP is a Colorado limited liability limited partnership. IPME,

LLLP has held the intangeable assets, including copyrights and trademarks, related to the

educational products and services advertised, marketed, offered for sale, sold, and distributed by

DEI.10 Defendants DEI, LLLP; DEI; and IPME, LLLP (hereinafter “Corporate Defendants”)

report 7233 Church Ranch Boulevard, Westminster, CO 80021 as their principal place of

business.11

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12 See McGregor Dec. ¶¶ 13, 16 & Exh. 7.

13 See Exhibits 1, 2 & 3 to Complaint; see also infra, III.A.2, 3, 10, 12 & 13.

14 From January 1, 2009 through June 30, 2009, over 90 percent of Defendants’customers purchased DEI’s products and services after calling the 800 number provided inDefendants’ infomercials. This percentage was over 84 percent and over 79 percent, in 2008 and2007, respectively. See McGregor Dec. ¶ 18.

15 See McGregor Dec. ¶ 20. The infomercial largely has been ranked as one of the 100most frequently disseminated infomercials in the United States on the Infomercial MonitoringService monthly reports for the period 2002 to March 2011. See id. at 32.

16 See, e.g., McGregor Dec. ¶¶ 23, 36 & Exh. 12 at 20:1 to 22:1.

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Defendant Russell T. Dalbey (“Dalbey”) is the majority owner, manager, and partner of

DEI, LLLP; the founder and Chief Executive Officer of DEI; and the majority owner and limited

partner of IPME, LLLP.12 He is the face of DEI, a company that bears his name. He appears in

infomercials and is prominently featured in websites, direct mail advertisements, and marketing

materials.13

III. DEFENDANTS’ DECEPTIVE BUSINESS PRACTICES

Dalbey and the Corporate Defendants promise consumers that by purchasing their

products and services they can quickly and easily find, broker and earn substantial money from

brokering promissory notes. The principal method Defendants use to draw consumers to the

program is an approximately 30-minute infomercial entitled, “Winning in the Cash Flow

Business” (“WITCFB”), of which Defendants have had numerous versions, all with similar

messages to consumers.14 The current WITCFB infomercial and its previous iterations have

been shown tens of thousands of times on broadcast and cable television.15 Depending on the

version of the infomercial, the cost of the program ranges from approximately $40 to $160.16

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17 See, e.g., Declaration of Stephen DiNardo (“DiNardo Dec.”) ¶ 3; Hanson Dec. ¶ 3;Yevtich Dec. ¶ 4.

18 McGregor Dec. ¶ 24.

19 See infra, III.A.2.

20 See McCullough Dec. ¶ 4; see also Declaration of Judy Hall (“Hall Dec.”) ¶ 4; HansonDec. ¶ 4; Declaration of Michele Moenning (“Moenning Dec.”) ¶ 3; Rodway Dec. ¶ 4; andYevtich Dec. ¶ 5 (declaring representatives told them such products and services were necessaryfor success or would enhance their chance of success).

21 See, e.g., Hall Dec. ¶¶ 5 &7; Yevtich Dec. ¶¶ 5, 7, 11 & 16.

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The WITCFB materials have included such items as booklets, CDs, and DVDs that purport to

teach consumers how to find and broker notes.17

The infomercial, websites, emails to consumers, and direct mail marketing materials

feature Dalbey and numerous testimonialists touting the substantial earnings to be made from

brokering promissory notes, and the ease and speed with which consumers can achieve those

earnings. A recent infomercial presents numerous images of fancy cars, yachts, and expensive

jewelry.18 Repeated as a mantra throughout the infomercials is the claim that all it takes to be

successful is three easy steps, the first and second of which reference finding and listing

promissory notes: “Find ‘Em,” “List ‘Em,” and “Make Money!”19 Often, Defendants lure

consumers who purchase the initial WITCFB program into purchasing additional products and

services with claims that such additional products and services will ensure or enhance their

success more quickly and easily.20 These additional products and services, such as multi-day

boot camps, seminars, coaching sessions and note holder lead lists cost hundreds to thousands of

dollars.21

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22 Plaintiffs allege additional unlawful claims in the Complaint, but to streamline ourrequest for relief at the preliminary injunction stage, seek to enjoin Defendants from makingthese core claims only.

23 In her declaration, Bonnie McGregor states that Complaint Exhibits 1, 2 and 3 aretrue, correct, and complete copies of infomercials produced by DEI. See McGregor Dec. ¶¶ 21-23. Throughout this memo, these infomercials are referred to as Complaint Exhibits 1, 2 and 3.

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A. Defendants’ Deceptive Claims

Defendants’ WITCFB infomercials and other marketing materials represent that DEI’s

customers are likely to quickly and easily find, list and broker promissory notes; earn substantial

amounts of money; and earn that money quickly and easily.22 The following excerpts from such

infomercials and materials serve as examples of these claims.

1. MALE ANNOUNCER: You’ll quickly see why everyone from the Wall StreetJournal to Money Magazine is raving about the cash flow business. And you’llbe amazed at just how easy it is to generate a stream of --ON SCREEN: Extra Income Every MonthMALE ANNOUNCER: -- extra income every month.ON SCREEN: Build Financial FreedomMALE ANNOUNCER: Build financial freedom --ON SCREEN: Better Quality of LifeMALE ANNOUNCER: -- and a better quality of life in just minutes a day.ON SCREEN: Retire Early MALE ANNOUNCER: Or even retire earlier than you ever dreamed possible. Order now and you’ll be ready to profit in minutes –ON SCREEN: Profit in Minutes!

See Complaint Exhibit 2 at 24:46 to 25:06 (graphics with text omitted); see also Complaint

Exhibit 3 at 07:08 to 07:23; 16:07 to 16:23; 24:37 to 24:52.23

2. RUSS DALBEY: It’s so incredibly easy, you wouldn’t believe it. You simplyfind a cash flow note and there’s millions of them out there, and then you listwhat you just found on my exclusive nationwide buyers network where buyersare ready to buy what you just found.

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24 McGregor Dec. ¶ 13 & Exh. 8.

25 McGregor Dec. ¶ 38 & Exh. 18.

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GARY COLLINS: So, you just find a note, list it on your exclusive network, andwhen the deal is done, you make money, just like that.RUSS DALBEY: It doesn’t get any easier than my simple three steps.ON SCREEN: Find ‘EmRUSS DALBEY: You just find cash flow notes -ON SCREEN: List ‘EmRUSS DALBEY: -- you list them --ON SCREEN: Make Money!RUSS DALBEY: -- and make money.

See Complaint Exhibit 3 at 03:36 to 04:03; see also Complaint Exhibit 1 at 06:54 to 07:09; 07:41

to 07:50; Complaint Exhibit 2 at 26:40 to 26:49; Complaint Exhibit 3 at 21:30 to 21:40;

WITCFB Website, www.witcfb.com/more info.aspx (captured May 24, 2011) (“It's fast. You

can learn it quickly and potentially make thousands of dollars the first time out. . . . It's easy.

Just follow my 3 simple steps. There’s nothing to figure out on your own. I show you exactly

what to do.) (Emphasis in original.)24

3. RUSS DALBEY: There are literally tens of millions of dollars in cash flow notesin every county across America. So, there’s virtually no limit to how muchmoney people can make.

See Complaint Exhibit 3 at 4:32 to 4:41; see also Complaint Exhibit 2 at 07:00 to 07:09; 13:39 to

13:53; Email to consumer purportedly from Russell Dalbey (disseminated March 26, 2010)

(“That’s why I’ve designed a program that makes finding notes simple and easy. In fact, you

don’t even have to find interested note-holders — because with this program... They Find

You!”) (Ellipses and emphasis in original.)25

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4. GARY COLLINS: Russ, you make it all sound so easy.RUSS DALBEY: It is easy. I’ve seen my students make $500, $5,000, $50,000and more on one deal, their first deal, with not a lot of hard work, too, in just afew hours. So, I’d say it’s pretty easy, wouldn’t you?

See Complaint Exhibit 3 at 11:37 to 11:53.

5. ON SCREEN: DARLYS S. Michigan $262,216 PART TIME Unique experience, results will vary.

DARLYS S.: I’ve made over a quarter million dollars very easily, part-time.

See Complaint Exhibit 3 at 04:16 to 04:19; see also Complaint Exhibit 2 at 17:33 to 17:44

(testimonial of Darlys S.) (“This business has been a dream for both me and my family. I have

made over a quarter of a million dollars. And anybody can do the same as I have done. All

they’ve got to do is pick up that phone and call you.”).

6. ON SCREEN: DARRELL S. Washington $23,006 IN EARNINGS Unique experience, results will vary.

DARRELL S.: I looked in my home state, one zip code, 150,000 notes available.

See Complaint Exhibit 3 at 05:10 to 05:15.

7. ON SCREEN: EDEN A. Oklahoma $6,000 IN 20 MINUTES Unique experience, results will vary.

EDEN A.: I was worried at first that it might be difficult, but the first day, in thefirst 20 minutes, I listed three notes. I’m not intimidated. It’s very easy.

See Complaint Exhibit 3 at 11:23 to 11:33; see id. at 22:26 to 22:33.

8. ON SCREEN: MIKE & BETTY C. Iowa $219,921 IN EARNINGS Unique experience, results will vary.

Winning-2009.comMIKE C.: We have made over $200,000 in the Winning In the Cash FlowBusiness.

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26 McGregor Dec. ¶ 30 & Exh. 14.

27 McGregor Dec. ¶ 14 & Exh. 9, at 4.

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See Complaint Exhibit 3 at 20:06 to 20:09; see also Complaint Exhibit 2 at 15:32 to 15:39.

9. I’ve made $745,900.58 so far!“The hardest part is ordering the program. . . after that the rest is pretty easy. I’vemade $745,900.58.”

Barbara G PA

[Photograph of Barbara Graff]

See WITCFB Website, http://www.winning-2009.com, disseminated in 2009 & 2010 (dollar

figures may vary)26; see also Complaint Exhibit 3 at 04:27 to 04:39 (Scrolling at bottom of

screen: “UPDATE: PENNSYLVANIA HOUSEWIFE, BARBARA G. MAKES OVER

$622,000.00, SAYS, “ANYONE CAN.” STUDENTS ARE EARNING MILLIONS!”)

10. ON SCREEN: WINNING IN THE Cash Flow BUSINESSGARY COLLINS: What about the current status of the real estate industry, huh? Foreclosures are up, the economy’s sluggish. It doesn’t seem like the best ofconditions. How does your program work during these hard times?RUSS DALBEY: Gary, with the way the economy is right now, I've never seen abetter time to get started. Never. In fact, my students are reporting recordincome levels.

See Complaint Exhibit 3 at 19:42 to 20:02; see also Note Network Website,

www.notenetwork.com/content/email/wkshp/tc/011f/ (captured May 24, 2011) (“Due to the

economic conditions of the country . . . the HUGE number of foreclosures . . . we may never see

a more profitable time in the note business.”) (emphasis in original);27 Email to consumer

purportedly from Russell Dalbey (disseminated May 3, 2010) (“The economy is working in our

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28 McGregor Dec. ¶ 38 & Exh. 19, at 1.

29 McGregor Dec. ¶ 13 & Exh. 8, at 3.

30 McGregor Dec. ¶ 11 & Exh. 6, at 1.

31 McGregor Dec. ¶ 14 & Exh. 9, at 2.

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favor. There are opportunities all around you to find cash flow notes. There’s a HUGE demand

for your services.”) (emphasis in original).28

11. “Garland J. of Georgia has already made more than $171,108 in the short timehe’s been in the business.”

See WITCFB Website, www.witcfb.com/more info.aspx (captured May 24, 2011).29

12. “My goal is to help you make ONE MILLION DOLLARS this year! I want togive you a chance to become a real, bona-fide millionaire this year. Even if I fallshort and you make only $500,000 or you make $200,000 or even $75,000 –wouldn’t you still be happy? I want to create 100 new millionaires . . . In just oneyear!”

See Note Network Website, www.notenetwork.com/content/email/wkshp/tc/011f/; (captured

April 1, 2009, after clicking on a hyperlink found on www.russdalbeytriplecrown.com)

(purportedly quoting Russ Dalbey).30

13. “You’ll have your own personal MILLIONAIRE BLUEPRINT to follow andstart making note deals the minute you walk out the door.”

See Note Network Website, www.notenetwork.com/content/email/wkshp/tc/011f/ (captured May

24, 2011) (purportedly quoting Russ Dalbey).31

14. “I’ll back everything with my full 60 day money-back guarantee. Now thatmeans if you don’t start making money right away simply return the product andI’ll gladly refund your money no questions asked. It’s my 100%,‘I’ll-prove-it-to-you-money-back’ guarantee.”

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32 McGregor Dec. ¶ 13 & Exh. 7, at 3.

33 McGregor Dec. ¶ 13 & Exh. 8, at 12.

34 McGregor Dec. ¶ 38 & Exh. 17, at 1.

35 McGregor Dec. ¶ 29 & Exh. 13.

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See WITCFB Website, www.witcfb.com/learn more.aspx (captured May 24, 2011) (purportedly

quoting Russ Dalbey).32

15. “I’m putting my trust in you, though. I trust that if I take this financial risk now…You'll pay me back by being part of my Million Dollar Club.”

See WITCFB Website, www.witcfb.com/more_info.aspx (captured May 24, 2011) (explaining

why Russ Dalbey is offering the program at such a low cost).33

16. “Or imagine you open your email and see this message:‘I’m contacting you about your note service. I have some cash flow notesI need to sell fast. Please call me at your earliest convenience.’

Now imagine getting messages like this weekly, sometimes even daily...• Without ever making one single cold call• Without ever stepping foot in a courthouse• Without ever even meeting face-to-face with anyone.”

Email to consumer purportedly from Russ Dalbey (disseminated March 24, 2010) (ellipses in

original).34

17. “I see it all the time. People new to the Cash Flow business walk into our BootCamp nervous and unsure of themselves – but they walk out a short three dayslater, with a note deal in hand – confident and ready to close more deals themoment they get home.”

DEI Direct Mail Booklet, “Russ Dalbey’s NOTE DEALS ON SPEED Boot Camp,” at page 2,

distributed Oct. 07, 2008 (Sales Offer for DEI’s Boot Camp purportedly from Russ Dalbey); see

id., at page 3 (“I’ll personally guarantee in three days or less you’ll have a deal in the works.”)35

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36 McGregor Dec. ¶ 38 & Exh. 20, at 1.

37 See DiNardo Dec. ¶ 2; Mendola Dec. ¶ 2; Moenning Dec. ¶ 2; Declaration of MichellePearson (“Pearson Dec.”) ¶ 2; Declaration of Karen Phillips (“Phillips Dec.”) ¶ 2; Declaration ofAnthony Terrill (“Terrill Dec.”) ¶ 2; Yevtich Dec. ¶ 2.

38 See supra, III.A.5, 8, 9 & 11.

39 See McGregor Dec. ¶ 24.

40 See supra, III.A.1; see also McGregor Dec.¶ 24.

41 See supra, III.A.15.

42 See Hanson Dec. ¶ 2; Mendola Dec. ¶ 2; Moenning Dec. ¶ 2; Pearson Dec. ¶ 2;Phillips Dec. ¶ 2; Rodway Dec. ¶¶ 2 & 4; Terrill Dec. ¶ 2; Yevtich Dec. ¶ 2.

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18. “Give Me 30 Days And I’ll Give YOU A Guaranteed Note Deal! . . . I’m puttingtogether a success team. And if you’re on my team, I guarantee you a FINISHEDnote deal in 30 days.”

Email from DEI to consumer (disseminated December 10, 2010).36

Consumers conclude from these and other similar claims that they will earn substantial

sums of money.37 The infomercials include testimonialists who report substantial earnings,38 and

they include repeated images of people lapping in luxury.39 Defendants’ recent infomercial

repeatedly informs consumers that they can use the products and services to retire early and gain

financial freedom.40 In fact, Defendants’ advertising urges consumers to become a part of

Defendants’ millionaire club.41

Defendants tell consumers that they can find, list, and broker notes easily, and

consequently, can easily make the substantial amounts of money depicted in the advertising.42 In

a recent infomercial, Defendants use the words “simple” or “easy” (or variations of these words)

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43 See McGregor Dec. ¶ 24.

44 See supra, III.A.5; see also Moenning Dec. ¶ 2; Yevtich Dec. ¶ 2.

45 In fact, Complaint Exhibit 3 contains approximately fifteen references to working theprogram in one’s part-time or spare time. See McGregor Dec. ¶ 24.

46 In an infomercial advertising DEI’s initial materials, Defendants repeatedly tellconsumers that “[a]ll [they] need to do is follow the program and [they]’ll make money.” SeeMcGregor Dec. ¶ 23 & Exh. 12, at 14:8 to 9, 34:8 to 9 & 53:15 to 16.

47 See supra, III.A.3 & 6; Mendola Dec. ¶ 2.

48 See supra, III.A.16; see also McGregor Dec.¶ 23 & Exh. 12, at 11:24 to 25 (“In fact,you don’t ever even have to leave home.”), & at 25:13 to 14.

49 See supra, III.A.3.

50 See supra, III.A.2; see also Phillips Dec. ¶ 10.

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thirty-eight times, or more than once per minute.43 Further, many consumers are enticed by the

ease with which the testimonialists claim to have made their money. Often testimonialists claim

to have made their money while working only part-time or in their spare time.44 Such references

to “part-time” or “spare-time” work further communicates to consumers that the business is easy

and takes little effort.45 In addition, Defendants tell consumers that the initial package is all they

need to be successful.46

Consumers are told that promissory notes are everywhere,47 and that after using

Defendants’ programs, they can find such notes without ever setting foot in a courthouse, or

even without ever leaving home.48 In fact, Dalbey tells consumers that note holders will find

them.49 Once consumers find notes or note holders find them, Defendants tell consumers that

there are note purchasers ready to buy those notes.50 Thus, the infomercials communicate the

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51 See supra, III.A.2.

52 See supra, III.A.10; see also DiNardo Dec. ¶ 2.

53 See McGregor Dec. ¶ 24.

54 See supra, III.A.1 & 7.

55 See McGregor Dec. ¶ 13 & Exh. 8, at 1.

56 McGregor Dec. ¶ 24.

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notion that after finding the notes, consumers’ earnings are virtually guaranteed. Defendants’

mantra in its three-step program expressly states that after finding and listing a note, all that

remains is the third step – “make money.”51 Moreover, Defendants explain in their advertising

that it is easier to broker notes in the current sluggish economy due to the increase in

foreclosures.52

Defendants also tell consumers that they can find, list, and broker promissory notes

quickly and thereby make a substantial amount of money quickly. In a recent infomercial

Defendants use the word “fast” or “quick” (or variations of these words) approximately ten times

and reference success while working “part-time” or in one’s “spare time” approximately fifteen

times.53 These terms along with references to working the program for only “minutes a day”54

communicate to consumers that they can quickly achieve success.

In addition, Defendants offer a 30-day, or in some recent instances, a 60-day, “money-

back guarantee,” whereby Defendants purportedly refund consumers’ money if they are not

satisfied with their purchase of the initial WITCFB materials.55 This guarantee, which is

referenced in a recent infomercial approximately sixty times,56 conveys that consumers will

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57 See supra, III.A.14.

58 See McCullough Dec. ¶ 4; see also Declaration of Judy Hall (“Hall Dec.”) ¶ 4; HansonDec. ¶ 4; Declaration of Michele Moenning (“Moenning Dec.”) ¶ 3; Rodway Dec. ¶ 4; andYevtich Dec. ¶ 5 (declaring that representatives told them such products and services werenecessary for success or would enhance their chance of success). Often such sales were made toconsumers who complained that the initial WITCFB materials were inadequate to learn thebusiness. See Hall Dec. ¶ 4; Hanson Dec. ¶ 4; Rodway Dec. ¶ 4. Defendants’ representativesused high pressure sales tactics to induce these consumers to pay hundreds to thousands ofdollars to Defendants for additional products and services. DiNardo Dec. ¶ 8; Pearson Dec. ¶ 4;Phillips Dec. ¶ 4. Two such tactics Defendants used were to tell consumers that only limitedspace remained for certain programs (Hall Dec. ¶¶ 7 & 10; Moenning Dec. ¶ 6; Phillips Dec. ¶¶4 & 5) or that DEI or Russ Dalbey himself had hand-picked them to partcipate in certainprograms. DiNardo Dec. ¶ 4; Pearson Dec. ¶ 4; Terrill Dec. ¶ 4.

59 Yevtich Dec. ¶ 16.

60 See McCullough Dec. ¶8; Mendola Dec. ¶¶ 7 & 11.

61 See Moenning Dec. ¶ 6; Yevtich Dec. ¶ 5 (each declaring they paid DEI $6,000 orapproximately that amount for boot camp).

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quickly achieve success with their products and services – i.e., that they will achieve success

within the thirty or sixty days of the guarantee. In fact, Dalbey says he will refund the

consumers’ money if they “don’t start making money right away.”57

Defendants lead consumers to believe that they will succeed even more quickly and more

easily if they purchase additional products and services often for thousands of dollars.58 For

instance, Defendants tell consumers that the note holder lists they purchase for $99559 contain

current and accurate lists of note holders, thereby making it easy to find notes to broker.60 In

addition, Defendants guarantee “a deal in the works” or a “note deal in hand” (see supra,

III.A.19) to consumers who take a three-day boot camp for approximately $6000.61 Defendants

offer the boot camp at DEI’s Colorado offices and advertised it to provide “one-on-one personal

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62 McGregor Dec. ¶ 29 and Exh. 13, at 3.

63 See DiNardo Dec. ¶ 4; Moenning Dec. ¶¶ 6 & 9; Phillips Dec. ¶ 5.

64 See Hall Dec. ¶ 5 (“. . . the representative [] guaranteed that if I enrolled in the ProtégéProgram, I would not only make money, but make all of the money back that I had spent on theProtégé Program [$6,282]within 30 days of enrolling in it”); Phillips ¶ 4 (“One representative []assured me that I would earn enough money before my first credit card payment to pay for the[$3,500] program . . .”).

65 This consumer was told that if she wanted to earn $3,000 to $5,000 per month, shecould invest around $1,000 to $2,000 for Level One Assistance, but if she wanted to earnapproximately $20,000 to $30,000 per month, she could invest $5,000 to $10,000 in Level ThreeAssistance, also known as the Winner’s Circle. Moenning Dec. ¶ 5.

66 See Mendola Dec. ¶ 4; Moenning Dec. ¶ 6; Rodway Dec. ¶ 5; Yevtich Dec. ¶¶ 10 &15. One consumer was told that, in order to take advantage of the 10-note deal guarantee andreceive a refund, she would have to agree to serve as a testimonialist for DEI. Moenning Dec.¶ 6.

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training” and the opportunity to “work on real, live, deals.”62 Again, these guarantees convey to

consumers that by the end of the boot camp they will have brokered a note.63

Further, Defendants’ telemarketers tell consumers that they will quickly make back the

hundreds or thousands of dollars they spend on these additional programs.64 Defendants told at

least one consumer that there was a direct correlation between the amount of money she spent on

Defendants’ products and services and the amount of money she would earn – i.e., that if she

spent more money she would earn more money.65 In addition, to induce consumers into

purchasing these expensive products and services, Defendants offer some consumers a 10-note

deal guarantee – i.e. when the consumer succeeds in brokering ten note deals in a year,

Defendants will refund the money he or she spent on their products and services.66

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67 See McGregor Dec. ¶¶ 13, 15 & Exh. 7, at 3.

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B. The Claims are False and Unsubstantiated

Contrary to Defendants’ representations that its customers will quickly and easily find,

list, broker, and earn substantial money brokering notes, only a minuscule percentage of

Defendants’ customers have brokered notes or earned any money. This is true regardless of the

time and effort expended by consumers. The aforementioned claims are false and

unsubstantiated, as demonstrated by Defendants’ lack of any basis for their claims, surveys

conducted on behalf of the FTC, the atypicality of testimonialists appearing in Defendants

advertising, and consumer declarations and complaints obtained by the FTC.

1. Defendants Have Failed to Substantiate Their Claims

During its investigation, the FTC determined that Defendants, in the more than 15 years

during which they have operated their business,67 have never conducted a survey of their

customers to measure their success in brokering notes or making money. Both the Colorado

Attorney General’s Office (in 2007) and the FTC (in 2009) asked Defendants for substantiation

for their ubiquitous, high-earnings claims for consumers who purchased their products and

services. Both law enforcement agencies specifically requested copies of any surveys

Defendants conducted to measure customer success. Defendants have not conducted any such

surveys despite the passage of over 15 years selling their products and services, hundreds of

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68 In fact, the purported earnings of testimonialists is the only substantiation Defendantshave offered for their earnings claims. Such anecdotal evidence does not provide a basis to tellconsumers that the products Defendants sell will yield substantial earnings. See FTC v.Minuteman Press, 53 F. Supp. 2d 248, 253 n.2 (E.D.N.Y. 1998) (anecdotal evidence of fewconsumers who made the kind of money touted by defendants is not “representative of the classgenerally”).

69 The FTC retained Dr. Manoj Hastak, a Professor of Marketing at the Kogod School ofBusiness at American University in Washington, DC, and, as discussed below, FredericaConrey, Ph.D, of ICF Macro. Dr. Hastak is eminently qualified to conduct surveys. Hisqualifications are set forth in detail in his declaration and in his accompanying curriculum vitae. Hastak Dec. ¶¶ 3-8 & Exh. B. Dr. Hastak’s survey in this matter is similar to, but not the sameas, a survey he conducted in a previous FTC investigation of a similar business opportunity, laterused in litigation against the target of the investigation. See FTC v. Stefanchik, 2007 U.S. Dist.LEXIS 25173 (W.D. Wash. Apr. 3, 2007), aff’d, 559 F.3d 924 (9th Cir. 2009). The Stefanchiktrial court accepted Dr. Hastak as a qualified survey expert and relied upon his survey, alongwith other evidence, in entering summary judgment against the defendants in that case. See id.at *15-16. On appeal, the Ninth Circuit dismissed defendants’ arguments that Dr. Hastak’ssurvey was biased and unreliable. See 559 F.3d at 928-29.

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millions of dollars in revenues, and separate requests from both Plaintiffs to see such

substantiation.68

2. The FTC’s Mail and Telephone Surveys Demonstrate That Very FewConsumers Succeed

As part of its investigation, the FTC retained two experts to conduct surveys of hundreds

of randomly-selected WITCFB purchasers.69 The purpose of the surveys was to determine,

primarily, whether consumers were successful in brokering promissory notes and earning any

money as a result. Secondarily, the surveys were designed to test whether consumer success was

correlated with the amount of money consumers spent on Defendants’ products and services or

with the amount of time they spent working in the note brokering business. Defendants’

advertising claims of fast, easy, and substantial success make it unnecessary to examine whether

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70 See supra, III.A.1, 7 & n.45.

71 Accordingly, Dr. Hastak designed the survey to test whether success was correlated totime and money spent. Dr. Hastak drew a random sample of 3,000 customers from Defendants’database. See Hastak Report, at 3. He requested and received the names, addresses andtelephone numbers of 1,500 customers who spent less than $500 on Defendants’ products andservices (Group A) and 1,500 customers who spent $500 or more on Defendants’ products andservices (Group B). See id. Despite the low spending group comprising about 86 percent ofDefendants’ customers, the sample was split 50/50 between the high and low spenders. See id.The theory behind distinguishing high spenders from low spenders was that a customer whoinvested, for example, $4,000 and purchased more of DEI’s products and services is more likelyto have put in significant time and effort than a customer who spent, for example, only $40 onthe initial WITCFB program. Thus, the survey could test Defendants’ proposition that hardwork yields substantial earnings.

72 See Declaration of Frederica Conrey, Ph.D. (“Conrey Dec.”), Exh. A (“ConreyReport”), at 8. This $15.92 average earnings achieved is conservative – i.e., overstated – inDefendants’ favor. In making this calculation, the FTC assumed that each survey respondent

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there is a correlation between consumers’ efforts and their success, because Defendants’ ads

often suggest that little effort is needed. For example, Defendants claim that success can be

achieved after purchasing only the initial WITCFB program and working just minutes a day.70

Nevertheless, the FTC surveyed consumers for this measure because Defendants will argue that

despite their claims, it is consumers who are to blame for not working hard enough to achieve

substantial earnings. Defendants contend that if consumers work hard, they will broker notes

and earn substantial amounts of money.71

As described below, the surveys’ findings are clear, consistent, and compelling. First,

the surveys reveal that only 1.1 percent of Defendants’ customers ever brokered any notes and

only 0.9 percent earned any money brokering notes. Incredibly, the estimated average (mean)

amount of money earned by Defendants’ customers in the note brokering business was only

$15.92.72 Second, the surveys reveal that consumers who reported spending more time and

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earned the highest possible amount in the earnings category he or she selected. For example, ifsurvey respondents indicated they earned somewhere between $1,000 and $3,999 (as ninerespondents did), the FTC assumed that they each earned $3,999. See id.

73 There was no follow-up telephone survey reliability check in the Stefanchik case, yetthe district and circuit courts nevertheless deemed Dr. Hastak’s survey in that case reliable.

74 An added benefit of a telephone survey is that if the results closely match those of amail survey, it is reasonable to conclude that the survey mode employed (mail or telephone) didnot influence the results.

75 Like Dr. Hastak, Dr. Conrey is also eminently qualified to conduct surveys. Herqualifications are set forth in detail in the Declaration of Frederica Conrey, Ph.D (“ConreyDec.”) and in her accompanying curriculum vitae. See Conrey Dec. Exh. C. Dr. Hastak agreeswith the methodology used, and the conclusions reached, by Dr. Conrey. See Hastak Dec. ¶ 13.

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money trying to find and broker notes were only slightly more successful than consumers who

reported putting in less time and money.

The key survey results described above are derived from the data collected during the

mail survey designed by Dr. Hastak, as well as a virtually identical follow-up telephone survey.

At Dr. Hastak’s suggestion, the FTC commissioned the follow-up telephone survey to reach

those consumers who did not respond to the mail survey.73 A telephone survey would help

determine whether consumers who did not respond to the mail survey experienced different

success than those who responded. This is known as “non-response bias.”74 The FTC retained

Frederica Conrey, Ph.D, of ICF Macro to design and supervise the follow-up telephone survey.75

Dr. Conrey’s report addresses her telephone survey and the combined results of the mail and

telephone surveys. She determined there was no significant difference in success brokering

notes between those who responded to the mail survey and those who responded to the telephone

survey. In other words, she found no non-response bias.

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76 See Attachment A (graph illustrating “Percentage of DEI Survey Respondents WhoBrokered at Least One Note”); Conrey Dec. Exh. B (graph 1). Although the increase from 0.8percent to 2.7 percent is statistically significant, it is not meaningful from the perspective ofconsumers who are bombarded with marketing claims about how fast and easy it is to findpromissory notes, list them, and make substantial amounts of money. See Conrey Report, at 4-5.

77 See Attachment B (graph illustrating “Percentage of DEI Survey Respondents WhoEarned Any Money”); Conrey Dec., Exh. B (graph 5). The increase from 0.8 percent to 1.9percent is not statistically significant. See Conrey Report, at 5.

78 The survey results showed that those who spent $500 or more on Defendants’ productsand services reported spending more time in their first couple of months attempting to find, list,and broker promissory notes than those who spent less than $500. See Conrey Report, at 6-7(table 8).

79 See Conrey Report, at 5.

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In evaluating the combined results of the telephone and mail surveys, Dr. Conrey found

that only 2.7 percent of the high spending combined mail/telephone survey respondents brokered

any notes versus 0.8 percent of the low spending survey respondents.76 Similarly, only 1.9

percent of high spending combined mail/telephone survey respondents earned any money

brokering notes versus 0.8 percent of the low spending survey respondents.77 She concluded that

despite Group B mail/telephone respondents having reported spending more time and money in

the note brokering business,78 they were only slightly more successful than Group A

mail/telephone respondents at brokering notes. In addition, Dr. Conrey found that Group B

mail/telephone respondents were not significantly more likely than those in Group A to have

earned any money in the note brokering business.79 Therefore, notwithstanding Defendants’

advertising claims that consumers can make money quickly and easily, the survey results

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80 See Conrey Dec. Exh. B (graphs 2, 6 & 8).

81 See Conrey Report, at 8.

82 See id.

83 See McGregor Dec. ¶ 28.

84 See Conrey Report, at 8.

85 See Attachment C (graph illustrating “Average Earnings Comparison of DEI SurveyRespondents with Infomercial Testimonialists”); see also Declaration of Erez Yoeli, Ph.D.

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confirm that no consumers, even those who put in significant time, effort, and money, are likely

to broker notes or make money.80

Based on the survey results, Dr. Conrey then projected these figures to Defendants’

entire universe of customers.81 Her statistical analysis reveals that only 1.1 percent of all of

Defendants’ customers ever brokered any notes and only 0.9 percent earned any money

brokering notes.82 Therefore, Defendants’ numerous fast and easy success and substantial

earnings claims are false and misleading.

3. Defendants Use Testimonialists Whose Experiences Are Not Typical

Notwithstanding these stark results, Defendants’ infomercials and other advertisements

use testimonialists who report earnings ranging from over $1,000 for one note brokering deal to

over $1.2 million for multiple note brokering deals.83 The average testimonialist’s earnings in

each of the three WITCFB infomercials attached as Exhibits 1, 2, and 3 to the Complaint is

$127,172; $126,097; and $129,576, respectively. By contrast, the Commission’s survey

respondents’ average earnings were a paltry $16.84 DEI’s testimonialist earnings claims far

exceed the earnings of a typical DEI consumer.85

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¶ 4 & Exh. 1.

86 McGregor Dec. ¶ 31.

87 This percentage is overstated in favor of DEI. The 473,254 number used in thiscalculation is the number of DEI’s consumers from January 2006 to March 2009, a period of 31/4 years. However, the 335 testimonialists is the number of DEI’s testimonialists from August29, 2000, the date of the first entry in DEI’s database for a testimonialist, through May 21, 2009,the date DEI submitted the information to the FTC, a period of almost 8 3/4 years. Obviously,the percentage of “successful” consumers would be even lower if the FTC compared the 335testimonialists to the larger number of DEI’s consumers for the entire 8 3/4 year period. Moreover, DEI’s submission does not reveal how much its testimonialists earned from brokeringnotes, and thus, we do not know how many testimonialists earned more money from brokeringnotes than they spent for DEI’s products and services.

88 See McGregor Dec. ¶ 34.

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Moreover, DEI reported that, as of May 21, 2009, 335 of its customers have served as

testimonialists.86 A comparison of this number of testimonialists to the number of DEI’s

customers generally (473,254) yields a success rate of 0.071 percent, or less than 1 out of every

1,400 customers.87 Such a small percentage of “successful” customers surely cannot

substantiate a claim that a typical consumer will find, list, and broker notes and earn substantial

money from doing so.

4. Consumer Complaints, Declarations, and Survey Responses FurtherEvidence Consumers’ Lack of Success

Over the past five years, hundreds of consumers have complained to the FTC, the U.S.

Postal Inspection Service, the Internet Crime Complaint Center, the Colorado Better Business

Bureau, and others about Defendants’ business practices.88 These consumers complain that they

were misled by Defendants’ advertising; that they experienced no success in finding, brokering

or earning money as a result of their purchase of Defendants’ products and services; that they

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89 See id.

90 DiNardo Dec. ¶ 11; Hall Dec. ¶ 12; Hanson Dec. ¶ 8; McCullough Dec. ¶ 12; MendolaDec. ¶ 12; Moenning Dec. ¶ 14; Pearson Dec. ¶ 9; Phillips Dec. ¶ 12; Rodway Dec. ¶ 11; TerrillDec. ¶ 12. The remaining consumer brokered only one note, but made only $500 in commissionafter having spent $28,156 on DEI’s products and services. Yevtich Dec. ¶ 23.

91 Hanson Dec. ¶ 6; McCullough ¶ 9; Mendola Dec. ¶ 9; Moenning Dec. ¶ 7; PearsonDec. ¶ 5; Rodway Dec. ¶¶ 8 & 11; Terrill Dec ¶¶ 7 & 10.

92 See DiNardo Dec. ¶ 3 (declarant is a consultant for large real estate developers; see id.¶ 2); Hall Dec. ¶ 4; Hanson Dec. ¶¶ 3 & 4; Pearson Dec. ¶ 3; Phillips Dec. ¶ 3 (declaring “overallthe [initial] WITCFB materials were a waste”); Rodway Dec. ¶ 3; Terrill Dec. ¶ 3; Yevtich Dec.¶ 4. Consumers also note that the initial materials largely tout more products and services soldby DEI. Pearson Dec. ¶ 3; Yevtich Dec. ¶ 4.

93 See Hanson Dec. ¶ 6; Rodway Dec. ¶ 8; Yevtich Dec. ¶ 16.

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were pressured into buying expensive additional products and services; that they felt they had

been scammed; and that they were not refunded their money after asking DEI for such refunds.89

From these complaints and other sources, the FTC was able to interview and obtain

declarations from eleven consumers. All but one of these consumers stated that they did not find

any notes or make any money as a result of having used Defendants’ products and services.90

Many of these consumers reported spending significant time and effort in attempting to work the

business.91 Despite Defendants’ promises that the business is easy, it is not. Consumers, at least

one of whom has a background in real estate, reported that the initial WITCFB materials were

hard to understand and did not contain sufficient information to learn how to broker notes.92

Consumers who spent many hours looking for notes at local courthouses generally did not find

any notes.93

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94 See DiNardo Dec. ¶¶ 5, 7 & 11; Hall Dec. ¶¶ 6 & 12; Menola Dec. ¶¶ 11 &12; PhillipsDec. ¶¶ 8 & 12; Rodway Dec. ¶ 7; Yevtich Dec. ¶¶ 6 & 10. As a result, consumers did not makeback the money they spent on these products and services, a claim often made by Defendants’telemarketers, upon which consumers rely when purchasing these expensive additional productsand services.

95 See DiNardo Dec. ¶ 5; Moenning Dec. ¶ 8; Phillips Dec. ¶ 8.

96 See McCullough Dec. ¶ 8; Mendola Dec. ¶ 6; Terrill Dec. ¶ 7.

97 See Moenning Dec. ¶ 8; Yevtich Dec. ¶ 10.

98 Several consumers who responded to the FTC’s mail survey reported havingdifficulties succeeding in the business in such an economy. They reported that the market fornotes “shut down” and “was not conducive to note buying.” See McGregor Dec. ¶ 35.

99 In fact, Dalbey discusses the “sluggish economy” not as a pitfall, but as anopportunity. He states, “[w]ith the way the economy is right now, I’ve never seen a better time

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Consumers also reported that the additional programs they purchased did not help them

broker a single note.94 In fact, consumers who attended boot camp reported that they did not

complete a note deal by the end of the boot camp as they had been led to believe would occur.95

In addition, consumers who purchased lists of purported note holders from Defendants

reported that the contact information on the lists was often inaccurate, or that the lists put them

in contact with note holders who no longer held the note, or who complained that they had been

contacted numerous times.96 Even on the rare occasion when consumers found a note to list,

there were often numerous obstacles preventing consumers from brokering and making money

on a note deal, including finding note holders who were not interested in selling for the price

offered,97 or finding notes on foreclosed properties or properties with drastically decreased

values that would be difficult to broker.98 These pitfalls are not described in Defendants’

advertising.99

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to get started.” See supra, III.A.10.

100 Hastak Dec. ¶ 2; Hastak Report, at 12-21. Dr. Hastak’s report contains numerousillustrative verbatim responses for each of these themes. Dr. Hastak reports a sixth theme, thatsome consumers attributed their lack of success to their insufficient effort, rather than to DEI’sproducts and services. Hastak Report, at 21-22. As discussed above, this theme is of minimalimport, because Defendants’ ads often suggest that little effort is needed. See supra, III.B.2. Plaintiffs believe these consumers may have put forth little effort, because it was readilyapparent upon receiving the materials that Defendants’ program would require significantlymore time and effort to understand and work the business than advertised.

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In addition to the consumer complaints and consumer declarations, many consumers who

responded to the FTC’s mail survey complained about DEI’s practices in response to the

survey’s request for consumers to: “Feel free to include additional comments below.” Five

themes of these complaints, as detailed in Dr. Hastak’s report, are as follows: (1) DEI’s program

was a scam and a waste of my money; (2) DEI’s program and training materials were falsely

advertised as being very easy to learn and apply; (3) DEI constantly tried to upsell/ pressured

consumers to spend more money on additional programs; (4) the leads provided by DEI were

outdated or otherwise worthless; and (5) consumers put a lot of time and effort into following

DEI’s program, and still achieved no positive results.100

IV. ARGUMENT

The FTC asks the Court to enter a preliminary injunction limited to certain core

Complaint claims. The requested relief is warranted because the FTC is likely to succeed on the

merits, and the equities balance in the FTC’s favor.

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101 Section 13(b) of the FTC Act authorizes the issuance of injunctive relief in twodifferent situations. Because the Commission proceeds here under the second proviso of Section13(b), the standard that is prescribed in the statute (which relates to the issuance of temporary orpreliminary relief in aid of administrative proceedings) does not apply. FTC v. H.N. Singer, Inc.,668 F.2d 1107, 1110-11 (9th Cir. 1982); FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431, 1434-35(11th Cir. 1984).

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A. The FTC Act Authorizes the Court To Grant the Requested Relief

This Court has the authority to grant preliminary and permanent relief pursuant to

Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).101 The second proviso of Section 13(b)

provides that in “proper cases the Commission may seek, and after proof the court may issue, a

permanent injunction.” A “proper case” includes any matter involving a law violation that the

FTC enforces. FTC v. Evans Prods. Co., 775 F.2d 1084, 1086-87 (9th Cir. 1985); FTC v. H.N.

Singer, Inc., 668 F.2d 1107, 1111, 1113 (9th Cir. 1982). Cases such as this one, involving

allegations of fraud and deceptive advertising, replete with misrepresentations of material facts

in violation of Section 5(a) of the FTC Act, qualify as “proper cases” for injunctive relief under

Section 13(b). FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1028 (7th Cir.

1988); H.N. Singer, 668 F.2d at 1111; see also FTC v. Gem Merch. Corp., 87 F.3d 466, 468-70

(11th Cir. 1996).

In a Section 13(b) action, the Court may exercise the full breadth of its equitable

authority. The Tenth Circuit has explained that, “[a]lthough § 13(b) does not expressly authorize

a court to grant consumer redress . . . § 13(b)’s grant of authority to provide injunctive relief

carries with it the full range of equitable remedies . . . .” FTC v. Freecom Commc’ns, Inc., 401

F.3d 1192, 1202 n.6 (10th Cir. 2005) (emphasis added). Thus, under Section 13(b), this Court

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102 See, e.g., FTC v. Bishop, 2011 U.S. App. LEXIS 8473, *2-3 (11th Cir. April 25, 2011)(upholding preliminary injunction in deceptive mortgage loan modification and foreclosure reliefscheme); U.S. Oil & Gas, 748 F.2d at 1432, 1434-35 (upholding preliminary injunction indeceptive oil and gas lease lottery investment scheme); FTC v. Affordable Media, LLC, 179 F.3d1228, 1233, 1238 (9th Cir. 1999) (upholding preliminary injunction in Ponzi scheme); WorldWide Factors, 882 F.2d at 346-48 (upholding asset freeze in prize give-away scam); WorldTravel Vacation Brokers, 861 F.2d at 1021-22 (upholding preliminary injunction in deceptivevacation package scheme).

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may order whatever temporary or preliminary relief is necessary to prevent ongoing consumer

injury. See World Travel Vacation Brokers, 861 F.2d 1020, 1026; H.N. Singer, 668 F.2d at

1113; FTC v. Southwest Sunsites, Inc., 665 F.2d 711, 717-18 (5th Cir. 1982). The exercise of

this broad equitable authority is particularly appropriate where, as here, the public interest is at

stake. Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946).

B. The Standard for Entry of a Preliminary Injunction

The Commission has made the showing required for the issuance of a preliminary

injunction to prohibit the continuation of Defendants’ deceptive acts and practices. In deciding

whether to grant a preliminary injunction, this Court “must (1) determine the likelihood that the

FTC will ultimately succeed on the merits and (2) balance the equities.” FTC v. Skybiz.com,

Inc., 2001 U.S. Dist. LEXIS 26175, *22 (N.D. Okla. Aug. 31, 2001) (citing World Travel

Vacation Brokers, 861 F.2d at 1029), aff’d, 2003 U.S. App. LEXIS 1653 (10th Cir. 2003);

FTC v. World Wide Factors, Ltd., 882 F.2d 344, 346 (9th Cir. 1989). Preliminary injunctions

have been granted and upheld in several circuits in FTC deceptive advertising cases.102

Specifically, the FTC has obtained preliminary injunctive relief in a number of wealth-building

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103 See, e.g., Affordable Media, 179 F.3d at 1233, 1238 (upholding preliminary injunctionin Ponzi scheme); FTC v. Ivy Capital, Inc., No. 2:11-cv-00283-JCM-GWF (D. Nev. Mar. 25,2011), available at http://www.ftc.gov/os/caselist/1023218/110325ivycapitalprelim.pdf (ordergranting preliminary injunction in work-at-home scheme in which consumers were told theycould make thousands of dollars); FTC v. Preferred Platinum Servs. Network, LLC, No. 10-cv-538-MLC-LHG (D.N.J. Feb. 16, 2010), available athttp://www.ftc.gov/os/caselist/0923213/100217preferredplatinumprelim.pdf(order granting preliminary injunction in work-at-home scheme in which consumers were toldthey could make substantial amounts of money); FTC v. Vega, No. H-04-1478, available athttp://www.ftc.gov/os/caselist/estebanbarriosvega/040414prelimestebanbarriosvega.pdf (S.D.Tex. Apr. 23, 2004) (order granting preliminary injunction in work-at-home scheme in whichconsumers were told they would make $500 to $1,000 per week); Skybiz.com, 2001 U.S. Dist.LEXIS 26175, *26, 34 (order granting preliminary injunction in pyramid scheme in whichconsumers were told they could earn substantial amounts of money).

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and work-at-home schemes in which defendants have made false or deceptive claims about the

substantial amounts of money to be made by consumers.103

With respect to the first factor, a court “need only find some chance of probable success

on the merits.” Skybiz.com, 2001 U.S. Dist. LEXIS 26175, at *22. Specifically, the Commission

“meets its burden on the likelihood of success issue if it shows preliminarily, by affidavits or

other proof, that it has a fair and tenable chance of ultimate success on the merits.” FTC v.

AmeriDebt, Inc., 373 F. Supp. 2d 558, 563, 564 n.6 (D. Md. 2005) (quoting FTC v. Beatrice

Foods Co., 587 F.2d 1225, 1229 (D.C. Cir. 1978)) (internal quotations omitted).

The second part of the Court’s consideration is the balance of equities. The Court must

“balance[] the hardships of the public interest against [the] private interest,” according the public

interest greater weight. Skybiz.com, 2001 U.S. Dist. LEXIS 26175, *23 (citing FTC v.

Affordable Media, LLC, 179 F.3d 1228, 1236 (9th Cir. 1999)); World Wide Factors, 882 F.2d

at 347. The public interest should receive greater weight particularly where the evidence

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demonstrates that a defendant’s business is rooted in deception, for a “court of equity is under no

duty to protect illegitimate profits or advance business which is conducted [illegally].” CFTC v.

British Am. Commodity Options Corp., 560 F.2d 135, 143 (2d Cir. 1977) (quoting FTC v.

Thomsen-King & Co., 109 F.2d 516, 519 (7th Cir. 1940)) (internal quotations omitted); FTC v.

Nat’l Invention Servs., Inc., 1997 U.S. Dist. LEXIS 16777, *11-12 (D.N.J. Aug. 12, 1997)

(quoting British Am. Commodity Options, 560 F.2d at 143, in order granting preliminary

injunction with asset freeze in invention promotion scheme); FTC v. Sage Seminars, Inc., 1995

U.S. Dist. LEXIS 21043, *22-23 (N.D. Cal. Nov. 2, 1995) (same in deceptive business

opportunity scheme). Moreover, the FTC is not required to prove irreparable harm to

consumers, as it is presumed in a statutory enforcement action. Skybiz.com, 2001 U.S. Dist.

LEXIS 26175, at *21.

C. The Evidence Presented Meets the Standard for a Preliminary Injunction

1. The Corporate Defendants’ Conduct Likely Violates Section 5(a) ofthe FTC Act

Defendants have engaged in deceptive acts and practices within the meaning of the FTC

Act, 15 U.S.C. § 45(a). “The primary purpose of § 5 is to lessen the harsh effects of caveat

emptor,” which “‘can no longer be relied upon as a means of rewarding fraud and deception and

has been replaced by a rule which gives to the consumer the right to rely upon representations of

facts as truth.’” Freecom, 401 F.3d at 1202 (quoting FTC v. Sterling Drug, Inc., 317 F.2d 669,

674 (2d Cir. 1963)). A violation of Section 5 of the FTC Act occurs when a representation,

omission, or practice is likely to mislead ordinary consumers, if such representation, omission, or

practice is material, in that the information conveyed (or not conveyed) is likely to influence

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consumers’ decisions of whether to purchase the relevant service or product. See Freecom, 401

F.3d at 1203; World Travel Vacation Brokers, 861 F.2d at 1029. When the advertising at issue

involves express claims, materiality is presumed. See Novartis Corp. v. FTC, 223 F.3d 783, 786

(D.C. Cir. 2000). Moreover, “[m]isrepresentations concerning anticipated income from a

business opportunity generally are material and likely to mislead consumers because such

misrepresentations strike at the heart of a consumer’s purchasing decision.” Freecom, 401 F.3d

at 1203. “Neither proof of consumer reliance nor consumer injury is necessary to establish a § 5

violation.” Id.

Here, as described above, Defendants consistently have made express, material claims

about the speed and ease with which consumers can find and broker promissory notes and the

substantial amounts of money they are likely to earn by doing so. The FTC need only

demonstrate that Defendants’ representations were likely to mislead consumers and need not

prove consumer injury or reliance to establish a Section 5 violation. Freecom, 401 F.3d at 1203;

FTC v. US Sales Corp., 785 F. Supp. 737, 747-48 (N.D. Ill. 1992) (“Indeed, advertisements are

illegal if they have a ‘tendency’ or ‘capacity’ to deceive; actual deception of particular

consumers need not be proven.”). Nevertheless, the FTC possesses ample evidence that

consumers are misled by Defendants’ advertising claims about the promissory note business and

the financial success that consumers are likely to achieve. Consumer complaints and

declarations demonstrate that consumers were lured into purchasing Defendants’ products and

services with the understanding that they would achieve substantial financial success quickly and

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104 See supra, III.B.4.

105 See Conrey Report, at 8.

106 See supra, III.B.3.

107 See FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 528-29 (S.D.N.Y. 2000)(consumers joining defendants’ program could reasonably assume that promised rewards wereachieved by typical program participant); FTC v. Febre, 1996 U.S. Dist. LEXIS 9487, *8 (N.D.Ill. 1996) (“[I]t can be presumed that a consumer would reasonably believe that the statements ofearnings potential represent typical or average earnings.”), aff’d, 128 F.3d 530 (7th Cir. 1997);Bailey Employment Sys., Inc. v. Hahn, 545 F. Supp. 62, 70 (D. Conn. 1982) (projected earningsclaims were deceptive where such claims did not “bear a reasonable relationship to the averageamounts earned in the past by the majority of existing franchises”), aff’d 723 F.2d 895 (2d Cir.1983); 16 C.F.R. § 255.2(b) (2011) (FTC Endorsement Guides) (“An advertisement containingan endorsement relating the experience of one or more consumers on a central or key attribute ofthe product or service also will likely be interpreted as representing that the endorser’sexperience is representative of what consumers will generally achieve with the advertised

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easily,104 a message that is conveyed repeatedly to consumers in DEI’s advertising and

telemarketing. Moreover, Defendants’ vast sales demonstrate large consumer injury resulting

from their deceptive claims.

In addition to Defendants’ lack of substantiation for their claims of fast, easy, and

substantial money, the FTC’s surveys show that consumers did not achieve the results that

Defendants touted in their infomercials and other advertisements. The FTC’s surveys reveal that

an estimated 98.9 percent of DEI’s customers never brokered a single promissory note, and 99.1

percent never made any money in the promissory note brokering business.105 Defendants’

infomercials, which use testimonialists who report earnings of over $126,000 on average,

contrast starkly with the average earnings of the survey respondents, a meager $16.106 Therefore,

DEI’s testimonialist earnings claims are deceptive because they far exceed(ed) the earnings of a

typical DEI consumer.107

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product or service in actual, albeit variable, conditions of use.”).

108 See McGregor Dec. ¶ 33 & Exh. 15. Defendants include this disclaimer in a morerecent infomercial selling Defendant Dalbey’s new book, The Real Estate Secret, which alsopurports to teach people how to find and broker seller-financed promissory notes and therebyearn substantial amounts of money. In the infomercial, Defendants use some of the sametestimonialists who appear in the WITCFB infomercials. Although Defendants state in theirdisclaimer that “[m]ost will earn little or no money,” Defendants report that they have neverconducted a survey of their consumers’ success rates.

109 Id.

110 See, e.g., FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1200 (9th Cir. 2006) (holdingthat fine print disclaimer did not preclude liability under Section 5 of FTC Act, because“solicitation may be likely to mislead by virtue of the net impression it creates even though thesolicitation also contains truthful disclosures.”); FTC v. Brown & Williamson Tobacco Corp.,778 F.2d 35, 42-43 (D.C. Cir. 1985) (affirming district court’s finding that advertisement’sdescription of cigarette tar content was deceptive even though fine print in the corner of the

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In fact, Defendants concede in a recent disclaimer that their advertised fast and easy

earnings claims are misleading and atypical. Defendants recently have used a testimonialist

disclaimer that states: “Results not typical and are dependent upon effort and other factors. Most

will earn little or no money. Testimonial [sic] purchased additional product.”108 (Emphasis

added.) This disclaimer is in small font and is hard to read,109 and Defendants have not placed it

in their WITCFB infomercials or on their websites.

Further, the disclaimers that Defendants have placed in their WITCFB infomercials are in

small, hard-to-read font. They minimally contrast with the screen behind them, are

unaccompanied by an audio disclaimer, and are displayed for only a few seconds, often with

distracting earnings claims in much larger text elsewhere on the screen. It is well-established

that fine print disclaimers typically do not mitigate deceptive headlines because consumers

rarely read them or are able to do so.110

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advertisement truthfully explained how tar content was measured); Porter & Dietsch v. FTC,Inc., 605 F.2d 294, 301 (7th Cir. 1979) (upholding FTC finding that disclosures “buried in smallprint” were inadequate to change net impression of weight loss claims in advertising); see also16 C.F.R. § 255.2(b) (“advertisement should clearly and conspicuously disclose the generallyexpected performance in the depicted circumstances”) (emphasis added).

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Moreover, neither the form nor substance of these disclaimers mitigate the overwhelming

net impression of the fast, easy, and substantial success claims in Defendants’ advertising. As

the court stated in FTC v. Direct Mktg. Concepts, Inc., “‘[d]isclaimers or qualifications in any

particular ad are not adequate to avoid liability unless they are sufficiently prominent and

unambiguous to change the apparent meaning of the claims and to leave an accurate impression.

Anything less is only likely to cause confusion by creating contradictory double meanings.’”

624 F.3d 1, 12 (1st Cir. 2010) (quoting Removatron Int’l Corp. v. FTC, 884 F.2d 1489, 1497

(1st Cir. 1989)) (holding that disclaimers in defendants’ infomercials did not mitigate deceptive

claims because such disclaimers failed to change net impression of infomercials).

2. Defendant Dalbey is Likely Individually Liable Under Section 5(a) ofthe FTC Act

If a corporation is liable for violating Section 5 of the FTC Act, an individual also may

be held liable for injunctive relief if the individual (i) participated directly in the corporation’s

acts or practices or (ii) had the authority to control them. See Freecom, 401 F.3d at 1204; FTC v.

Publ’g Clearing House, 104 F.3d 1168, 1170 (9th Cir. 1997). “Authority to control the company

can be evidenced by active involvement in business affairs and the making of corporate policy,

including assuming the duties of a corporate officer.” FTC v. Amy Travel Serv., Inc., 875 F.2d

564, 573 (7th Cir. 1989).

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111 See supra, e.g., III.A.12-17.

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Here, the FTC is likely to succeed in showing Defendant Dalbey’s participation or

authority to control the Corporate Defendants. He participated directly in the Corporate

Defendants’ advertising by serving as DEI’s spokesperson and featuring himself in DEI’s

infomercials, websites, direct mail advertisements, and marketing materials, many of which

appear to be messages to consumers from Defendant Dalbey himself.111 Further, Defendant

Dalbey had the authority to control the Corporate Defendants’ acts and practices, given his

respective roles as the founder, majority owner, manager, and partner of DEI, LLLP; the founder

and Chief Executive Officer of DEI; and the majority owner and limited partner of IPME, LLLP.

3. The Equities Balance in the FTC’s Favor

Once the Commission shows a likelihood of success on the merits, the Court must

balance the equities, assigning greater weight to the public interest than to Defendants’ private

concerns, in determining whether to grant injunctive relief. World Wide Factors, 882 F.2d at

347; FTC v. Warner Commc’ns, Inc., 742 F.2d 1156, 1165 (9th Cir. 1984) (per curiam)

(“Although private equities may be considered, public equities receive far greater weight”).

Here, the balance of equities tip decidedly in the FTC’s favor. The need for preliminary

injunctive relief is necessary to protect the public from any further ongoing financial injury

caused by Defendants’ deceptive practices. Financial injury may start at approximately $40 to

$160 for each consumer who purchases Defendants’ initial program, but quickly reaches

thousands of dollars for consumers who are misled into purchasing additional products and

services at a significant cost. In contrast, Defendants have no legitimate interest in making false

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112 See infra, n.108.

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claims or swindling consumers out of more money. World Wide Factors, 882 F.2d at 347

(upholding district court finding of “‘no oppressive hardship to defendants in requiring them to

comply with the FTC Act [or] refrain from fraudulent representation . . . .’”). A “court of equity

is under no duty to protect illegitimate profits or advance business which is conducted

[illegally].” British Am. Commodity Options, 560 F.2d at 143.

D. The Proposed Preliminary Injunction Is Tailored To Provide Interim ReliefWith Respect To Defendants’ Unlawful Practices

Plaintiffs’ proposed preliminary injunction does not require Defendants to cease

advertising or selling their note brokering products and services. Part I of Plaintiffs’ proposed

preliminary injunction requires Defendants to refrain from misrepresentations that violate the

FTC Act – specifically, representations that consumers are likely to: quickly or easily find, list,

or broker promissory notes; earn substantial amounts of money; or do so quickly and easily.

Part II requires Defendants to make the truthful disclosure in their infomercials and other

advertising that “[m]ost of [their] consumers will earn little or no money.” Plaintiffs’ proposed

disclaimer is virtually identical to the disclaimer that Defendants already use when marketing

Defendant Dalbey’s book, The Real Estate Secret.112 It would, however, need to be disclosed

clearly and prominently to all prospective customers. Further, the FTC’s survey data confirms

the need for such a disclaimer, as well as its accuracy.

Part III requires Defendants to record sales calls and retain records, such as telephone

sales scripts, training materials, and advertisements. Part IV requires Defendants to submit to

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